The RBI's dollar-rupee swap auction will boost liquidity by way of absorption of dollar inflows while bolstering its forex reserves, say analysts.

The rupee edged higher to 69.58 against the dollar on Tuesday, recovering from a two-week low logged the previous day. The mild recovery in the rupee comes on a day marked with the second round of dollar-rupee swap auction by the central bank. The rupee opened at 69.63 and appreciated by as much as nine paise against the greenback compared to its previous close of 69.67. The Reserve Bank of India's move will boost liquidity by way of absorption of dollar inflows while bolstering its forex reserves, say analysts.

Advances in the domestic equity markets along with government assurance that India will get additional supplies from other major oil producers to make up for loss of Iranian oil boosted the currency.

The Sensex rose as much as 0.49 per cent and the Nifty gained 0.44 per cent in intraday trade during Tuesday's session, recovering from the worst single-day performance of the year the previous day.

The upside in the rupee was capped due to strength in the dollar overseas. The dollar index - which measures the US currency against six major peers - rose as much as 0.09 per cent and was last seen trading 0.08 per cent higher during the session.

The Reserve Bank of India (RBI) is set to inject long-term liquidity worth $5 billion into the banking system through dollar-rupee buy-sell swap for a tenure of three years, the second such auction within a month.

The rupee had declined by 32 paise to a two-week low of 69.67 against the dollar on Monday.

India, the second biggest buyer of Iranian oil, has lined up alternate sources to make up for the likely shortfall in supplies after the US decided not to give waiver from its sanctions for buying oil from the Persian Gulf nation.

The US has demanded that buyers of Iranian oil stop purchases by May 1 or face sanctions, ending six months of waivers which allowed Iran's eight biggest buyers to continue importing limited volumes.

International crude oil prices were near 2019 highs on Tuesday, with benchmark Brent crude futures up 0.5 per cent from their last close and not far off a 2019 peak of $74.52 reached the previous day.

Recent gains mark the rupee's return to the positive territory against the dollar so far this year. It had depreciated an overall 9.23 per cent against the greenback in calendar year 2018.